If There Is an Inflationary Gap in the Economy, Discretionary

question 38

Multiple Choice

If there is an inflationary gap in the economy, discretionary fiscal policy will likely include action to:

• A) shift aggregate demand to the right.
• B) prevent the aggregate demand curve from shifting.
• C) shift aggregate demand to the left.
• D) shift both aggregate demand and short-run aggregate supply to the left.

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Definitions:

Machine Hour

A unit of measure that represents the operation of machinery or equipment for one hour, used in allocating manufacturing overhead.

Least-squares Regression

A statistical method used to determine the relationship between variables by minimizing the sum of the squares of the differences between observed and predicted values.

Variable Lubrication Cost

Costs for lubricants that vary with the level of machinery activity or operation hours.

Mixed Cost

A cost consisting both of variable and fixed components, which changes in total in response to changes in activity level but not necessarily in direct proportion.